The device, as the name implies, would feature a 7-inch display and focus largely on gaming, The Verge reported, citing unnamed sources.

The Xbox Surface would follow its larger brother, the recently launched Surface, which features a 10-inch display and runs a stripped-down version of Windows called Windows RT. The Xbox Surface would reportedly run on its own version of Windows as well.

Microsoft declined to comment. "We don't comment on rumors or speculation," according to a company representative.

An Xbox Surface would follow up to one of the hotter brands in Microsoft's stable. The Xbox 360 remains a powerhouse in the video game industry and continues to be a draw for consumers. The tablet would also be consistent with Microsoft's transformation from a software company into one that juggles both hardware and software, as illustrated by the Surface.

The rumor of a gaming tablet isn't new with the first word of such a device flaring up in June. ZDNet's Mary Jo Foley wrote a few weeks ago about the possibility that the Xbox Surface could be Microsoft's first entry into the 7-inch mini-tablet segment.

A tablet could take advantage of the move by consumers to mobile games played on smartphones and tablets, which have steadily taken market share away from the traditional video game consoles.

The Xbox Surface gaming tablet would likely include a custom ARM processor -- the same kind used in other tablets and smartphones -- and more RAM to handle more intense games, The Verge reported, adding the specifications could be changed to include an Intel system-on-a-chip processor instead.

Microsoft is developing at least part of the Xbox Surface in the company's offices in Silicon Valley, adding that the offices have recently been locked down, likely for increased testing of the tablet.